Waiting on Apple....07.20.15

Apple reports after the close tomorrow and positive momentum is building ahead of that event....and was almost solely responsible for today's pop in QQQ (of which Apple comprises 20+%).  On the bigger picture things weren't quite so positive and the odds of a pullback increase each successive day a one fails to materialize.  Here's a look at today's action and the close was not bullish.
Below that is a new composite graphics panel that was added to the Mosaic site today and which combines various TrendX graphic modules into a single panel in order to better understand the current technical picture on SPY. This panel will be undated end of day each day with the six unique M3 models only posted once a week unless something surprising develops (which is often).
Note that the 2 day ALERT stop has crossed over price....this is ominous. (click once to enlarge)

QQQ Surges...Can It Hold?.....07.17.15

The Qs were on fire today gaining almost 2 % while the rest of the indices lagged.
Going into Monday we are net long although we continue to be VERY, VERY overbought.
We have a new format and layout on the M3 site that produces a true mosaic signal of momentum, mean reversion and market neutral signals.  Thanks for the positive feedback so far.
Here's a look at today's M4 update and the things that bother me about the technical panels are 3 fold.
One> the continued divergence of XIV and SPY...historically this skew cannot be sustained and we are currently way outside the standard deviation bands, so that's a caution flag.
Two> the ALERT signal looks about to turn down...meaning a waning of momentum and a likely change in trend, that's another caution flag.
Three> XIV premium is fast approaching long term overhead resistance and when XIV reverses it tends to do so in a dramatic fashion, and that's another flag.
Maybe we're going to get a huge bump here and the markets are going to surge higher but the technicals suggest a frothy environment filled with multiple danger signals.  
Apple reports on the 21st after the close and that may be the go or no threshold.
So far most earnings reports have been above expectations and VIX has been steadily falling..

Stepping Up...07.16.15

A strong day with an SPY open jumping to R2 and sticking at that level all day.  The closing was equally strong and going into OP EX Friday (typically weak...especially into the close) we are confronted with multiple Long signals in the M3 model portfolio.  We're getting very overbought on the indices and QQQ and XLF hit new highs today so the odds are SPY's not far behind....even though the odds for a pullback increase with each successive day up.  This, of course, is all technically speaking as the wall of worry seems to have been at least temporarily forgotten.
We are very cautiously Long going into Friday's open and are likely to impose trailing stops within the first 20 minutes to preserve our recent gains.

SPY Ponzo and VDX Updates...07.15.15

Here's the latest SPY Ponzo Update and I really don't like the "best fit" chart inside the bigger Ponzo risk forecast.  The skew between the high and low range has been increasing over the past months and the odds of a break one way or the other have increased accordingly.
Other than blow out earnings its hard to figure what the catalyst might be for an upside breakout while there's lots of risk factors that might set that best case fit in motion.
There's a new magazine, Modern Trader with some great content provided by a number of real deal hedge fund managers and economist types.  It's not free and the articles aren't downloadable so I can't share but the feature article this month is 10 reasons to sell equities and there's a number of compelling reasons to consider such a plan.
Today we introduce a brand new model performance dashboard on the M3 site along with a new market neutral model.  Hopefully this new dashboard will provide a useful thumbnail of potential risk/rewards scenarios, especially if the markets do start to crumble..

.

A Simple Market Neutral Model...07.14.15

Pairs trading is the classic example of a market neutral strategy but here's another approach that is very risk adverse and still keeps making money is an up or down market. We use the M3 platform and view the performance of 3 inputs > SPY, SH and XLU.  I've talked about the logic of using XLU as an outlier in this type of long/short model before and this is just a variation of that idea. We use the same .6% limit stop across the board and if you look carefully you'll see the "2" box in the header checked...meaning we have vested positions in the top 2 ranked issues at the close of each trading session. What's interesting about this tactic is that it makes money whether or not we turn on the 3 day mean reversion auto stop. (green "MR" box in header).  Without the auto stop the model just kicks out a ranking based on positive 10 day momentum and relative strength.
Going forward with the Mosaic site we'll be posting 4 daily updates soon, including one of these 2 models (yet to be determined) the SPY and XIV LABS and either M3+ or M4. That model portfolio should provide a full spectrum of defined risk profiles to suit your particular comfort level.....and when we get consensus across all the models we can be more assured of a favorable outcome...discounting the always unknowable news surprises.
First, with no mean regression auto stop>

Then with the mean regression auto-stop>

A New M3 Paradigm....07.13.15

The markets have been frustrating for technical traders for the past few months and M3's equity curves  have suffered as a result.  Although the curves have stayed above the RSQ line support line the lack of any sustained momentum and trend follow-through has produced many cash days and many whipsaws. So how do we deal with these stagnant market conditions and get back to making some risk buffered money?
As part of my recent hedge fund strategy formulations I've made some adjustments and additions to the Mosaic toolbox of market tactics.
Here they are in a nutshell and going forward all four signals will be posted daily on the subscriber site.  The M3 site will be revised later this week to reflect the underlying logic and risk management philosophy of these new models and for the short term I'll also continue to post the daily LM and M3 signals as a sounding board for the new regime of models.
The first 2 models focus on a single ETF/ETN.....either SPY or XIV and the signal is either on or off with a specified limit stop....which we've examined previously as far superior to a simple stop loss. These are mean reversion algorithms looking to buy on weakness and sell on strength.
The later 2 models, a refined M3+ and a new M4 retain the sliding beta approach and are momentum based models looking to buy strength and sell higher.  M3+ contains SHY, our cash proxy and uses a slightly slowly momentum algorithm than M4.  M4 has no SHY component so the vested bias is much more defined.  Once again we utilize defined limit stops to mitigate drawdowns.  These are just thumbnail descriptions  of the models...there be more details in the revised site this week and next.  

VDX Updates + links....07.11.15

Here's the Mosaic VDX outlooks for SPY, XIV and VXX.  Clearly the volatility ETNs are stretched far outside their "normal" expansion zones and if we just look at the technicals on face value it would appear that the bulls have odds in their favor.  Things aren't quite so simple however once we consider the various global macro economic assaults on the markets and ...just to boost the uncertainty a bit further...earnings season kicks off next week and then Friday's is options expiration.
That's a lot of volatility factors all occurring simultaneously so, needless to say, caution is warranted.
Here's two links that provide educated observations on the trading environment and the China factor.
Randy Frederick is head of Schwab options trading who actually trades.  I've known Randy for years, he's the real deal and his feel for the market pulse has a proven track record.
Then there Evergreen Capital, a hedge fund that offers a weekly state of the markets update and this one is focused on China...again authored by someone actually in the trenches and not just talking off he top of their head.  The piece is long but if you're concerned about your capital account it might be worth your time.